Smith Advertising partners charged with fraud in federal court

Thursday

May 8, 2014 at 12:57 PMMay 8, 2014 at 5:40 PM

Firm once handled tourism advertising for Sarasota and Charlotte counties.

By MICHAEL POLLICK

Capping the collapse of the ad agency that once handled tourism advertising for both Sarasota and Charlotte counties and was considered among the state’s premier visitor promotion companies, the federal government has charged the principals of Smith Advertising & Associates with wire fraud related to a $55 million Ponzi scheme.

Father-and-son advertising team Gary and Todd Smith, of Fayetteville, North Carolina, were charged in federal court in Tampa, according to documents.

The pair’s alleged scheme involving the advertising firm’s receivables ensnared a number of prominent Sarasota residents, including businessman and vacation rental operator Larry Starr and real estate investor Marvin Kaplan, co-owner of the Ellenton Ice and Sports Complex and an investor in several Dolphin Tower condominium units in downtown Sarasota.

Charges against the Smiths stem from a two-year investigation by both the U.S. Secret Service and the FBI.

If convicted, Gary Truman Smith, 69, and Gary Todd Smith, 45, would each face a maximum penalty of 30 years in federal prison, the U.S. Attorney’s Office in Tampa stated.

The two made their first court appearance in Tampa federal court on Wednesday and “were released on their own recognizance, pending further court proceedings,” said William Daniels, a U.S. Attorney’s office spokesman.

The U.S. Attorney now has 30 days to persuade a federal grand jury to indict the two, he indicated.

The Smiths’ alleged scheme, according to the criminal complaint filed Monday in Tampa federal court, began in 2007.

The federal investigation of the pair surfaced in February 2012, when Kaplan was sued by Regions Bank involving millions of dollars in checks. For his part, Kaplan maintained he was simply a victim of the Smiths’ scheme.

Kaplan filed lengthy counter-claims in June 2012, alleging that the Smiths had defrauded him with help from Starr, a former business associate. Starr denies the claims and stated he, too, invested significantly in the Smith Advertising receivables.

Kaplan may have lost as much as $22 million from investing in Smith receivables.

“I am the one who brought it to the attention of the U.S. Attorney,” Kaplan told the Herald-Tribune on Thursday. “The U.S. attorney said I was a victim from day one. I am not the only victim, don’t get me wrong, but I am a victim, for sure.”

The 50-page, federal criminal complaint does not mention Starr, though it does note that Kaplan wrote checks on a Regions Bank account based on what he believed were electronic deposits from Smith Advertising, which he then used for other investments.

“Larry Starr is a victim. He lost almost a million dollars,” said Starr’s attorney, A. Brian Albritton, who is the former U.S. Attorney in Tampa.

Starr “unfortunately shares the same condition as many other people who dealt with the Smiths,” Albritton added. “The government is accepting the same position,” Albritton said.

The Secret Service became involved because the original complaint in the case was filed by a bank alleging currency manipulation.

“This was definitely manpower-intensive,” said John Joyce, special agent in charge of the Secret Service’s Tampa field office, who spearheaded the agency’s investigation.

Armed with a search warrant, agents from the Tampa Secret Service office raided Smith Advertising quarters in March 2012 and returned with a van full of documents and computers.

What the agency, aided by the FBI, gradually uncovered was that the Smiths maintained two sets of record books, one real and one fake.

When the company ceased operations in late February 2012, their real books showed that they were $103 million in debt.

One confiscated computer server in particular “has been found to contain a large amount of evidence related to the fraud scheme,” according to the complaint. The server files included promissory notes, fabricated invoices and even instructions on how to create them.

That file, labeled “Instruction manual Drksd.doc,” suggests that whoever created it was thinking of the phrase “dark side,” authorities believe.

Drksd.doc “appears to give directions on how to create the promissory notes as well as how to fabricate a vendor invoice,” the criminal complains states.

With help from a cooperating source who had worked for Smith Advertising, the agency unraveled the scheme.

“There was a ‘boiler-room’-type aspect to the solicitation of lenders,” according to the criminal complaint filed jointly by the FBI and the Secret Service.

“For example, Todd Smith might contact a prospective lender and offer that person (or entity) an opportunity to ‘invest’ $50,000 for seven days and that they could earn 7% or a flat rate for making the loan,” the complaint states.

“Frequently, Todd Smith would also offer the investor a ‘renewal’ of the loan,” the complaint continued.

The cooperating source estimated the pool of lenders at 300 people.

The Smiths promised investors — including Receivable Management Funding LLC, principal Walter Schulz, of Casey Key, and his two sons, Matthew and Michael — high-yield returns on the receivables and invoices, authorities stated.

Receivable Management, which included Starr, sued Smith Advertising in March 2012 and won a default judgment for $17.6 million, records show. Regions obtained a payment order for $6.4 million.

Smith Advertising was the so-called “agency of record” for the then-Sarasota Convention and Visitors Bureau beginning in 1997 until early in 2004. As part of that contract, it formulated a $900,000 advertising and promotional campaign aimed at boosting visitations to local arts and cultural assets.

The ad firm, which operated for nearly four decades, also worked with Charlotte County tourism officials until shortly before the North Carolina offices closed in early 2012.

EARLIER: Capping a major collapse of the firm that once handled tourism advertising for both Sarasota and Charlotte counties and was considered among the state's premier visitor promotion companies, the federal government has charged the principals of Smith Advertising & Associates with wire fraud as part of a $55 million Ponzi scheme.

Father-and-son advertising team Gary and Todd Smith, of Fayetteville, North Carolina, were charged in federal court in Tampa, according to documents.

The pair's alleged scheme involving the advertising firm's receivables ensnared a number of prominent Sarasota residents, including businessman and vacation rental operator Larry Starr and real estate investor Marvin Kaplan, co-owner of the Ellenton Ice and Sports Complex and an investor in several Dolphin Tower condominium units in downtown Sarasota.

Charges against the Smiths stem from a 2-year investigation by both the U.S. Secret Service and the FBI.

If convicted, Gary Truman Smith, 69, and Gary Todd Smith, 45, would each face a maximum penalty of 30 years in federal prison, the U.S. Attorney's Office in Tampa stated.

The two made their first court appearance in Tampa federal court on Wednesday and “were released on their own recognizance, pending further court proceedings,” said William Daniels, a U.S. Attorney's office spokesman.

The Smiths' alleged scheme, according to the criminal complaint filed Monday in Tampa federal court, began in 2007.

The federal investigation of the pair surfaced in February 2012, when Kaplan was sued by Regions Bank for allegedly kiting millions of dollars in checks. For his part, Kaplan maintained he was simply a victim of the Smiths' scheme.

Kaplan filed lengthy counter-claims in June 2012, alleging that the Smiths had defrauded him with help from Starr, a former business associate. Starr denied the claims and stated he, too, invested significantly in the Smith Advertising receivables.

The 50-page, federal criminal complaint does not mention Starr, though it does note that Kaplan wrote checks on a Regions Bank account based on what he believed were electronic deposits from Smith Advertising, which he then used for other investments.

The Secret Service became involved because the original complaint in the case was filed by a bank alleging currency manipulation.

The alleged fraud occurred when Smith Advertising borrowed money from investors like Kaplan and Starr to pre-purchase advertising space in various publications at a discount, which it would, in turn, sell at a premium to clients.

The pair also borrowed money by producing what were believed to be clients' outstanding invoices.

Authorities allege the Smiths used new loans to pay off older debts without generating cash from advertising sales or invoices.

In all, victims have claimed losses of more than $55 million, according to the complaint filed this week.

To maintain the alleged scheme, authorities say, the Smiths kept two different sets of record books — one authentic set and one containing false amounts.

When the company ceased operations in late February 2012, it was roughly $103 million in debt, according to authorities.

The Smiths promised investors — including Receivable Management Funding LLC, principal Walter Schulz, of Casey Key, and his two sons, Matthew and Michael — high-yield returns on the receivables and invoices, authorities stated.

Receivable Management, which included Starr, invested more than $17 million in Smith receivables, according to court records. The firm sued Smith Advertising in March 2012, records show.

Smith Advertising was the so-called “agency of record” for the then-Sarasota Convention and Visitors Bureau beginning in 1997 until early in 2004. As part of that contract, it formulated a $900,000 advertising and promotional campaign aimed at boosting visitations to local arts and cultural assets.

The ad firm, which operated for nearly four decades, also worked with Charlotte County tourism officials until shortly before the North Carolina offices closed in early 2012.

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